UPDATE 1-Cabot to pay $4.1 mln in Penn. gas contamination

* Nineteen families in Dimock to receive at least $50,000

* Future of the town's water supply remains uncertain

By Jon Hurdle

PHILADELPHIA, Dec 15 (Reuters) - Cabot Oil & Gas
agreed to pay residents of the town of Dimock $4.1 million in
compensation for contamination of their water wells with
natural gas under a deal it made with state regulators.

The deal, announced by state environmental officials on
Wednesday, helps resolve an ongoing conflict in the town in
northeast Pennsylvania that became one of the first to raise
concerns about the environmental impact of the shale gas boom
in Pennsylvania's Marcellus Shale.

Cabot, a gas-driller and a constituent on the Thomson
Reuters Shale Gas Index , previously had been
penalized by regulators for leakage of natural gas and
chemical spills in Dimock.

Environmentalists have also raised concerns about the
chemicals used in hydraulic fracturing, or fracking, in which
a mixture of sand, water and chemicals is blasted into shale
deep beneath the surface to free trapped gas.

The amount paid to each of 19 affected families will equal
twice the value of their homes, with a minimum payment of
$50,000, according to the settlement reached with Cabot by the
state's Department of Environmental Protection.

The company will also pay the state $500,000 to offset the
expense of investigating gas leaks that have affected
residents of the northeast Pennsylvania town for two years.

"The 19 families who have been living under very difficult
conditions for far too long will receive a financial
settlement that will allow them to address their own
circumstances in their own way," DEP Secretary John Hanger
said in a statement.

METHANE LEAKS

Cabot said in a statement the agreement provides a
"reasonable and pragmatic way forward" for all parties.

The agreement allows the company to resume well completion
operations in the area of Dimock that has been affected by
methane leaks, it said.

In late 2009, a group of Dimock residents sued Cabot for
contaminating their wells and hurting the value of their real
estate.

Ron Carter, one of the litigants, said late on Wednesday
that he and his wife Jean would receive $344,000 under the new
settlement but he didn't know whether that would enable him to
resume using water from his private well.

"I think we got screwed," said Carter, 71. "If your water
isn't any good, whatever money they give you isn't going to
correct the water."

For the last year, Carter has been using water from a
system paid for by Cabot but that would be withdrawn within 45
days if he accepts the settlement, he said.

A state plan to install a water main in Dimock at a cost
of $11.8 million has now been abandoned because of opposition
to the project and its uncertain future, Hanger said.

In April 2010, the DEP ordered Cabot to cap three wells
believed to be the source of methane that was migrating into
private water wells.
(Reporting by Jon Hurdle, editing by Daniel Trotta and
Muralikumar Anantharaman)